Saving Money Is Important

If you don’t earn much and you can barely pay your bills, the idea of saving money might seem laughable. When you only have $5 left at the end of the month, why even bother to try saving? Because everyone has to start somewhere, and if you work at it, your financial situation is likely to improve over time. Saving money is worth the effort. It gives you peace of mind, it gives you options, and the more you save, the easier it becomes to accumulate additional savings.

Peace of Mind

Who hasn’t lain awake at 3:00 a.m. wondering how they were going to afford something they needed? If money is really tight, you might be wondering how you’re going to pay the rent next week. If you’re a little further up the financial ladder, you might worried about how many months you could pay the bills for if you lost your job. Later in life, the money thoughts that keep you up at night might center around paying for your kids to go to college or having enough money to retire. (Get help with college savings by reading Stop Procrastinating! Enroll In A College Savings Plan.)

As you accumulate savings, your financial worries should diminish, as long as you’re living within your means and not always looking for new things to worry about. If you already have next month’s rent taken care of by the first week of the current month, if you know you can get by without work for three to six months, if you have savings accounts for your children’s education and your own retirement that you’re regularly funding, you’ll sleep better at night. The reduced stress from having money in the bank frees up your energy for more enjoyable thoughts and activities.

Expanded Options

The more money you have saved, the more you control your own destiny. If your job has you on the verge of a nervous breakdown, you can quit even if you don’t have a new job lined up yet and take time off to restore your sanity before you look for new employment. If you’re tired of living in an unsafe neighborhood, you can move to a safer area because you’ll have enough for a deposit on a better apartment or a down payment on a nicer home. (Is buying a home in your future plans? Read How To Buy Your First Home: A Step-By-Step Tutorial.)

If you get sick and need expensive healthcare that your insurance doesn’t cover, you’ll have a way to pay for it even though you can’t work while you’re getting treatment. And knowing that you have options because of the money you’ve socked away can give you even more peace of mind.

No, money doesn’t solve every problem. It you are laid off, it might take as long as two years to find a new job. Some illnesses won’t go away no matter how many procedures you can afford, and random crime can happen even in a supposedly secure gated community. But with more money in the bank to deal with issues like these, you give yourself better odds of coming out on top.

Money Working for You

Most of us put in hundreds of hours of work each year to earn most of our money. But when you have savings and stash your funds in the right places, your money starts to work for you. Over time, you’ll need to work less and less as your money works more and more, and eventually, you might be able to stop working altogether.

What does it mean to have your money working for you? When you’re first starting to save, you’ll want to put your money somewhere safe, where you can access it right away for unforeseen expenses. That means an online savings account, where you might earn 1% interest annually and not even keep up with inflation, which tends to run around 2% to 3% per year. You’ll even have to pay taxes on your meager 1% earnings. Anything is better than earning 0%, though, or not having savings and going into credit card debt, which will cost you 10% to 30% in interest per year. (For related reading, see Why You Absolutely Need An Emergency Fund and How To Use Your Roth IRA As An Emergency Fund.)

Once you’ve saved three to six months’ worth of expenses in your emergency fund, you can start saving money in a tax-advantaged retirement account. That’s where the magic starts to happen. These accounts, such as a Roth IRA or 401(k), allow you to invest in the stock market. If you do it right, you’ll earn about 8% per year on average over the long run. You won’t pay any taxes on those investment gains along the way, which will help your money grow even faster. With a Roth IRA, you contribute after-tax dollars, and everything that’s in the account after that is yours to keep. With a 401(k), you get to contribute before-tax dollars, giving you more money to invest up front; you’ll pay taxes when you withdraw the money in retirement. (If you’re not sure whether it’s better to pay taxes now or later, you can hedge your bets and contribute to both your employer-sponsored retirement plan and a Roth IRA.) The third choice, a traditional IRA, allows you to contribute before-tax dollars as you do with a 401(k).

If you have a high income and low expenses, you might accumulate enough to retire in 10 years. For most people, it takes closer to 40 years. But at some point, if you save and invest regularly, you should be able to live off the income generated by your investments – the saved money that’s working for you. The earlier you start, the more time a small amount of money has to grow large through the miracle of compounding.

Know Steps To $1 Million

Let’s face it: we all don’t make millions of dollars a year, and the odds are that most of us won’t receive a large windfall inheritance either. However, that doesn’t mean that we can’t build sizeable wealth — it’ll just take some time. If you’re young, time is on your side and retiring a millionaire is achievable. Read on for some tips on how to increase your savings and work toward this goal.

Stop Senseless Spending
Unfortunately, people have a habit of spending their hard-earned cash on goods and services that they don’t need. Even relatively small expenses, such as indulging in a gourmet coffee from a premium coffee shop every morning, can really add up— and decrease the amount of money you can save. Larger expenses on luxury items also prevent many people from putting money into savings each month.

That said, it’s important to realize that it’s usually not just one item or one habit that must be cut out in order to accumulate sizable wealth (although it may be). Usually, in order to become wealthy one must adopt a disciplined lifestyle and budget. This means that people who are looking to build their nest eggs need to make sacrifices somewhere; this may mean eating out less frequently, using public transportation to get to work and/or cutting back on extra, unnecessary expenses. (To learn more, read The Disposable Society: An Expensive Place To Live.)

This doesn’t mean that you shouldn’t go out and have fun, but you should try to do things in moderation – and set a budget if you hope to save money. Fortunately, particularly if you start young, saving up a sizeable nest egg only requires a few minor (and relatively painless) adjustments to your spending habits.

Fund Retirement Plans ASAP
When individuals earn money, their first responsibility is to pay current expenses such as the rent or mortgage, food and other necessities. Once these expenses have been covered, the next step should be to fund a retirement plan or some other tax-advantaged vehicle.

Unfortunately, retirement planning is an afterthought for many young people. Here’s why it shouldn’t be: funding a 401(k) and/or an IRA early on in life means you can contribute less money overall and actually end up with significantly more in the end than someone who put in much more money but started later. (To see how this works, check out Why is retirement easier to afford if you start early?)

How much difference will funding a vehicle such as a Roth IRA early on in life make?

If you’re 23 years old and deposit $3,000 per year (that’s only $250 each month!) in a Roth IRA earning an 8% average annual return, you will have saved $985,749 by the time you are 65 years old due to the power of compounding. If you make a few extra contributions, it’s clear that a $1 million goal is well within reach. Also keep in mind that most of your earnings are in interest— your $3,000 contributions alone only add up to $126,000.

Now, suppose that you wait an additional 10 years to start contributing. By this time, you have a better job that when you were younger, you earn more and you know you’ve lost some time —so you contribute $5,000 per year. You get the same 8% return and have the same goal to retire at 65. But by starting to save later, your compounded earnings won’t have as much time to grow. In this scenario, when you reach age 65, you will have saved $724,753. That’s still a sizeable fund, but you had to contribute $160,000 just to get there – and it’s nowhere near the $985,749 you could’ve had for paying much less.

 

Improve Tax Awareness
Sometimes, individuals think that doing their own taxes will save them money. In some cases, they might be right. However, in other cases it may actually end up costing them money because they fail to take advantage of the many deductions available to them.

Try to become more educated as far as what types of items are deductible. You should also understand when it makes sense to move away from the standard deduction and start itemizing your return. (To learn everything you need to know about filing your tax return, check out our Guide to Tax Planning 2016.)

However, if you’re not willing or able to become educated about filing your own income taxes, it may actually pay to hire some help, particularly if you are self-employed, own a business or have other circumstances that complicate your tax return.

Own Your Home

Many of us rent a home or an apartment because we cannot afford to purchase a home, or because we aren’t sure where we want to live for the long term. And that’s fine. However, renting is often not a good long-term investment because buying a home is a good way to build equity.

Unless you intend to move in a short period of time, it generally makes sense to consider putting a down payment on a home. (At least this way, over time, you can build up some equity and the foundation for a nest egg.) (For more insight on weighing this decision, read To Rent Or Buy? The Financial Issues.)

Avoid Luxury Wheels
There’s nothing wrong with purchasing a luxury vehicle. However, individuals who spend an inordinate amount of their incomes on a vehicle are doing themselves a disservice —especially since this asset depreciates in value so rapidly.

How rapidly does a car depreciate?

Obviously, this depends on the make, model, year and demand for the vehicle, but a general rule is that a new car loses 15-20% of its value per year. So, a two-year old car will be worth 80-85% of its purchase price; a three-year old car will be worth 80-85% of its two-year-old value.

In short, especially when you are young, consider buying something practical and dependable that has low monthly payments — or that you can pay for in cash. In the long run, this will mean you’ll have more money to put toward your savings —an asset that will appreciate, rather than depreciate like your car.

Don’t Sell Yourself Short
Some individuals are extremely loyal to their employers and will stay with them for years without seeing their incomes take a jump. This can be a mistake, as increasing your income is an excellent way to boost your rate of saving.

Always keep your eye out for other opportunities and try not to sell yourself short. Work hard and find an employer who will compensate you for your work ethic, skills and experience.

Know About Financial Planning Checklist

While everybody’s financial situation is different, there are some options and strategies that can be used by all to get on the right financial path.

Financial Fundamentals

Develop a budget and stick with it: When making a budget it is important to develop a realistic one and stick with it. You need to decide how much you can afford to spend and what you should be saving each month. To be financially independent, it is important to start making wise choices early on in order to develop a habit of staying within your budget.

Figure out your credit score: Do you know what your credit score is and how much it can affect you in various areas of your life? How do you build credit in a responsible way to make sure there are no surprises down the road? There are ways for you to check your credit score. Visit one of the three reporting agencies for more information.

Money Saving Tips

Employee benefits: What benefits do you currently have and what benefits are offered at your job? Are you contributing enough to your retirement plan to get the full employer match? What other savings can you get by participating in the other benefits offered to you? Speak to your human resources department to make sure you understand all the benefits available to you.

Emergency fund: Do you currently have an emergency fund? Have you thought about what would happen if your car broke down tomorrow? What if it was something bigger? Most financial professionals recommend three to six months of your monthly expenses to be saved in a liquid account that you can access when you need it.

Pay back loans: When creating a budget, make sure you include any loans that you currently have. When looking at the amount to pay each month try to allocate a slightly higher amount than the required minimum payments. This could possibly save you money by lowering the amount of interest you could be paying.

Set up a savings account(s): Do you have a large purchase in your future? Think about setting up a separate savings account to start saving for any dreams or goals you might have. This helps to separate your money so you can see the progress you are making towards your purchase without tapping into your emergency fund. This can be beneficial if you are looking at purchasing a house as you will most likely need a down payment. (For related reading, see: 10 Ways to Effectively Save for the Future.)

Establish relationships with various insurance and financial professionals: In your 20s it is important to start developing these relationships because you will need various types of insurance and guidance to help you manage the risk that will be encountering on your own. Insurance professionals will ensure you and your possessions are covered, while a financial professional will help you with various financial strategies to help you achieve financial independence.

Set Long-Term Financial Goals

Start saving for retirement: Retirement might seem like a long way away, but it is never too early to start looking at the various retirement options you have. Taking part in the retirement options you have at work are a great start but for some people, it might make sense to look at alternative investments outside of work, such as a traditional IRA. If you qualify based on your income, a Roth IRA can be a great way to start saving for retirement outside of the workplace because it offers tax-free withdrawals during retirement.* You should talk to your financial professional about the different options that are available.

Develop goals and write them down: In your 20s everything can be changing so fast that you don’t know where to start. A great thing to do is sit down and start coming up with some goals. Break these down into short, mid and long-term goals. This helps by giving you some direction in your life. Focus on your goals and make sure what you are doing every day is keeping you on the right track to achieve them. (For more, see: Want to Be Financially Fit in 2017? Use These Tips.)

Guidelines to Achieve Success

Consider saving 30% of your income: This might seem like a lot starting out, but it is important to save for the various aspects of your life. Consider saving 10% for retirement, 10% towards your emergency fund and 10% towards any large purchases you might have coming up.

Have an emergency fund: It is extremely important to set up your emergency fund and not touch it unless needed for an emergency. This fund will help give you the peace of mind that if something were to happen, you can take care of yourself. Try to get six months of your living expenses saved up.

Minimize credit card debt: Credit cards can have high interest rates that can really cost you a lot of money in the long term. Try to pay off your credit cards every month or, if you have to carry a balance, try to keep it under your credit limit.

Buying a vehicle: When buying a car consider putting down a significant down payment. When financing the car consider doing so for no more than four years and spending no more than 10% of your gross income on car payments. If you are buying a new car, consider driving it for 10 years to maximize the car’s value and to limit the loss due to depreciation.

Buying a home: Like buying a car, put down at least 20% as a down payment on a new home. This will help you to lower the monthly mortgage cost, help your chances of getting a favorable loan and also make sure you don’t spend more on your home than you can afford. Some financial professionals will advise you to keep the total cost of your home under two or three year’s worth of annual income.

Create a Budget

Many older clients I talk to have never had a budget and don’t want one. But at the same time, they are worried they won’t have enough money to retire. This is where some tough love comes in. Whether you like it or not, following a basic budget is the best way to live comfortably in retirement.

It’s very easy to talk about budgets and the importance of a budget, yet many clients have worked for 40 years and have been able to save, so whatever budget they had worked for them. And I understand that clients want to be enjoying their money in retirement––not stressing out over what they can afford. In fact, the worrying is the advisor’s job––that’s what the client is paying for. But it makes life so much easier for an advisor if they know what their clients’ spending habits are like. (For related reading, see: How to Build Retirement Income with Annuities.)

I don’t mean that you necessarily have to log each and every dollar you spend either. Most people are guilty of not having a perfect budget––and it’s okay. Work out a compromise between having a full-blown budget and having none. And at the very least, create a budget that breaks out fixed costs including property tax, insurance, medical and basics (car, food, shelter). In fact, every budget should break expenses in two columns:

Fixed and Required Expenses

These include things you must pay for in order to survive:

  • Housing
  • Food
  • Clothing
  • Insurance
  • Medications

This category is only for non-optional expenses–– everything else needs to go into the second category. No exceptions.

Everything Else in Your Budget

Anything that is not integral to living and surviving goes into this second column–– and everything in this column instantly becomes optional. Yes, that includes travel. As much as most people look forward to traveling in retirement, it’s important to be realistic with your savings. If you simply don’t have the funds to do it, you need to pay for food instead.

Put another way, no matter what your current financial situation is, it’s important to remember that just because you have the option to spend money on something, that does not necessarily mean it’s a good idea.

If you feel the need to track every last dollar as part of your budgeting efforts, you should go back three months and look at what you spent. If some expenses are paid only once a year, you can factor those in later. Most budgeting books encourage you to start keeping track of your spending starting today, tomorrow, or at the start of the next month. Those methods simply don’t work.

Looking at behavioral reasons alone, you’ll be careful about what you spend going forward because you want the spreadsheet of your expenses to look good–– only to be upset later because you feel restricted from spending your own money.

By looking into your past spending, however, you’ll be able to identify your impulse buys and reflect on whether or not they were really worth it. Through that, you’ll develop better clarity about your financial habits and realize where you need or want to improve. (For more, see: Gen X: Can Your House Cost You Your Retirement?)

For example, I once met with a couple who was struggling to save enough and wanted to know what they could do to improve their situation. After looking back at their past three months of spending, they realized that they had spent an average of $1,000 a month on eating out. Once they realized that this wasn’t how they wanted to spend their money going forward and that the experience wasn’t worth it to them, it was easier for them to increase their grocery bill and still save $800 per month for other goals.

By breaking spending into two categories––the absolute necessities and the wish list items will separate––it means you won’t jeopardize your financial future for the wish list. This actually makes it less stressful, too, when your advisor points out you don’t have enough saved up. It doesn’t mean you’ll be poor; it just means that you have to approach wish list more strategically.

Personal Finance Tips

We’ve certainly amassed a wealth of knowledge over the years covering the money beat —be it the dozens of “I got out of debt” success stories we’ve featured to the scores of psychological studies we’ve covered linking betterfinancial decision-making to behavior change.

So given that it’s Financial Literacy Month, we’ve decided that there is no better time than now to round up our 50 top money tips into one juicy, super-helpful read. From the best ways to budget to how to boost your earning potential like a pro, these nuggets of financial wisdom are as fresh as the day they were published.

First Things First: A Few Financial Basics

1. Create a Financial Calendar

If you don’t trust yourself to remember to pay your quarterly taxes or periodically pull a credit report, think about setting appointment reminders forthese important money to-dos in the same way that you would an annual doctor’s visit or car tune-up. A good place to start? Our ultimate financial calendar .

2. Check Your Interest Rate

Q: Which loan should you pay off first ? A: The one with the highest interest rate. Q: Which savings account should you open? A: The one with the best interest rate. Q: Why does credit card debt give us such a headache? A: Blame it on the compound interest rate. Bottom line here: Paying attention to interest rates will help inform which debt or savings commitments you should focus on.

3. Track Your Net Worth

Your net worth—the difference between your assets and debt—is the big-picture number that can tell you where you stand financially . Keep an eye on it, and it can help keep you apprised of the progress you’re making toward your financial goals—or warn you if you’re backsliding.

How to Budget Like a Pro

4. Set a Budget, Period

This is the starting point for every other goal in your life. Here’s a checklist for building a knockout personal budget .

5. Consider an All-Cash Diet

If you’re consistently overspending, this will break you out of that rut. Don’t believe us? The cash diet changed the lives of these three people . And when this woman went all cash, she realized that it wasn’t as scary as she thought. Really.

6. Take a Daily Money Minute

This one comes straight from LearnVest Founder and CEO Alexa von Tobel, who swears by setting aside one minute each day to check on her financial transactions. This 60-second act helps identify problems immediately, keep track of goal progress—and set your spending tone for the rest of the day!

7. Allocate at Least 20% of Your Income Toward Financial Priorities

By priorities, we mean building up emergency savings, paying off debt, and padding your retirement nest egg. Seem like a big percentage? Here’s why welove this number .

8. Budget About 30% of Your Income for Lifestyle Spending

This includes movies, restaurants, and happy hours—basically, anything that doesn’t cover basic necessities. By abiding by the 30% rule, you can save and splurge at the same time.

How to Get Money Motivated

9. Draft a Financial Vision Board

You need motivation to start adopting better money habits, and if you craft a vision board, it can help remind you to stay on track with your financial goals.

10. Set Specific Financial Goals

Use numbers and dates, not just words, to describe what you want to accomplish with your money. How much debt do you want to pay off—and when? How much do you want saved, and by what date?

11. Adopt a Spending Mantra

Pick out a positive phrase that acts like a mini rule of thumb for how you spend. For example, ask yourself, “Is this [fill in purchase here] better than Bali next year?” or “I only charge items that are $30 or more.”

12. Love Yourself

Sure, it may sound corny, but it works. Just ask this author , who paid off $20,000 of debt after realizing that taking control of her finances was a way to value herself.

13. Make Bite-Size Money Goals

One study showed that the farther away a goal seems, and the less sure we are about when it will happen, the more likely we are to give up. So in addition to focusing on big goals (say, buying a home), aim to also set smaller, short-term goals along the way that will reap quicker results—like saving some money each week in order to take a trip in six months.

14. Banish Toxic Money Thoughts

Hello, self-fulfilling prophecy! If you psych yourself out before you even get started (“I’ll never pay off debt!”), then you’re setting yourself up to fail. So don’t be a fatalist, and switch to more positive mantras.

15. Get Your Finances–and Body—in Shape

One study showed that more exercise leads to higher pay because you tend to be more productive after you’ve worked up a sweat. So taking up running may help amp up your financial game. Plus, all the habits and discipline associated with, say, running marathons are also associated with managing your money well.

16. Learn How to Savor

Savoring means appreciating what you have now, instead of trying to get happy by acquiring more things.

17. Get a Money Buddy

According to one study , friends with similar traits can pick up good habits from each other—and it applies to your money too! So try gathering several friends for regular money lunches, like this woman did, paying off $35,000 of debt in the process.

How to Amp Up Your Earning Potential

18. When Negotiating a Salary, Get the Company to Name Figures First

If you give away your current pay from the get-go, you have no way to know if you’re lowballing or highballing. Getting a potential employer to name the figure first means you can then push them higher.

19. You Can Negotiate More Than Just Your Salary

Your work hours, official title, maternity and paternity leave, vacation time, and which projects you’ll work on could all be things that a future employer may be willing to negotiate.

20. Don’t Assume You Don’t Qualify for Unemployment

At the height of the recent recession, only half of people eligible for unemployment applied for it. Learn the rules of unemployment .

21. Make Salary Discussions at Your Current Job About Your Company’s Needs

Your employer doesn’t care whether you want more money for a bigger house—it cares about keeping a good employee. So when negotiating pay or asking for a raise, emphasize the incredible value you bring to the company.

How to Keep Debt at Bay

22. Start With Small Debts to Help You Conquer the Big Ones

If you have a mountain of debt, studies show paying off the little debts can give you the confidence to tackle the larger ones. You know, like paying off a modest balance on a department store card before getting to the card with the bigger balance. Of course, we generally recommend chipping away at the card with the highest interest rate, but sometimes psyching yourself up is worth it.

23. Don’t Ever Cosign a Loan

If the borrower—your friend, family member, significant other, whoever—misses payments, your credit score will take a plunge, the lender can come after you for the money, and it will likely destroy your relationship. Plus, if the bank is requiring a cosigner, the bank doesn’t trust the person to make the payments. Bonus tip for parents: If you’re asked to cosign a private loan for your college student , first check to see if your kid has maxed out federal loan, grant, and scholarship options.

24. Every Student Should Fill Out the FAFSA

Even if you don’t think that you’ll get aid, it doesn’t hurt to fill out the form. That’s because 1.3 million students last year missed out on a Pell Grant—which doesn’t need to be paid back!—because they didn’t fill out the form.

25. Always Choose Federal Student Loans Over Private Loans

Federal loans have flexible terms of payment if your employment dreams don’t exactly go according to plan after college. Plus, federal loans typically have better interest rates. So be smart about the loans you take out —and try to avoid these other big student loan mistakes .

26. If You’re Struggling With Federal Student Loan Payments, Investigate Repayment Options

Just call up your lender and ask whether they offer graduated, extended, or income-based plans. Read more about these options here .

27. Opt for Mortgage Payments Below 28% of Your Monthly Income

That’s a general rule of thumb when you’re trying to figure out how much house you can afford. Learn more about this number here . And then indulge in some voyeurism and see what other couples can afford .

How to Shop Smart

28. Evaluate Purchases by Cost Per Use

It may seem more financially responsible to buy a trendy $5 shirt than a basic $30 shirt—but only if you ignore the quality factor! When deciding if the latest tech toy, kitchen gadget, or apparel item is worth it, factor in how many times you’ll use it or wear it. For that matter, you can even consider cost per hour for experiences!

29. Spend on Experiences, Not Things

Putting your money toward purchases like a concert or a picnic in the park—instead of spending it on pricey material objects—gives you more happiness for your buck. The research says so .

30. Shop Solo

Ever have a friend declare, “That’s so cute on you! You have to get it!” for everything you try on? Save your socializing for a walk in the park, instead of a stroll through the mall, and treat shopping with serious attention.

31. Spend on the Real You—Not the Imaginary You

It’s easy to fall into the trap of buying for the person you want to be : chef, professional stylist, triathlete.

32. Ditch the Overdraft Protection

It sounds nice, but it’s actually a way for banks to tempt you to overspend, and then charge a fee for the privilege. Find out more about overdraft protection andother banking mistakes to avoid .

How to Save Right for Retirement

33. Start Saving ASAP

Not next week. Not when you get a raise. Not next year. Today. Because money you put in your retirement fund now will have more time to grow through the power of compound growth.

34. Do Everything Possible Not to Cash Out Your Retirement Account Early

Dipping into your retirement funds early will hurt you many times over. For starters, you’re negating all the hard work you’ve done so far saving—and you’re preventing that money from being invested. Second, you’ll be penalized for an early withdrawal, and those penalties are usually pretty hefty. Finally, you’ll get hit with a tax bill for the money you withdraw. All these factors make cashing out early a very last resort.

35. Give Money to Get Money

The famous 401(k) match is when your employer contributes money to your retirement account. But you’ll only get that contribution if you contribute first. That’s why it’s called a match, see?

36. When You Get a Raise, Raise Your Retirement Savings, Too

You know how you’ve always told yourself you would save more when you have more? We’re calling you out on that. Every time you get a bump in pay, the first thing you should do is up your automatic transfer to savings, and increase your retirement contributions. It’s just one step in our checklist for starting to save for retirement .

How to Best Build—and Track—Your Credit

37. Review Your Credit Report Regularly—and Keep an Eye on Your Credit Score

This woman learned the hard way that a less-than-stellar credit score has the potential to cost you thousands. She only checked her credit report, which seemed fine—but didn’t get her actual credit score, which told a different story.

38. Keep Your Credit Use Below 30% of Your Total Available Credit

Otherwise known as your credit utilization rate, you calculate it by dividing the total amount on all of your credit cards by your total available credit. And if you’re using more than 30% of your available credit, it can ding your credit score .

39. If You Have Bad Credit, Get a Secured Credit Card

A secured card helps build credit like a regular card—but it won’t let you overspend. And you don’t need good credit to get one! Here’s everything you need to know about secured credit cards.

How to Get Properly Insured

40. Get More Life Insurance on Top of Your Company’s Policy

That’s because the basic policy from your employer is often far too little. Not convinced? Read how extra life insurance saved one family .

41. Get Renters Insurance

It, of course, covers robberies, vandalism, and natural disasters, but it could also cover things like the medical bills of people who get hurt at your place, damages you cause at someone else’s home, rent if you have to stay somewhere else because of damage done to your apartment—and even stuff stolen from a storage unit. Not bad for about $30 a month!

How to Prepare for Rainy (Financial) Days

42. Make Savings Part of Your Monthly Budget

If you wait to put money aside for when you consistently have enough of a cash cushion available at the end of the month, you’ll never have money to put aside ! Instead, bake monthly savings into your budget now. Read more on this andother big savings mistakes —and how to fix them.

43. Keep Your Savings Out of Your Checking Account

Here’s a universal truth: If you see you have money in your checking account, you will spend it. Period. The fast track to building up savings starts with opening a separate savings account , so it’s less possible to accidentally spend your vacation money on another late-night online shopping spree.

44. Open a Savings Account at a Different Bank Than Where You Have Your Checking Account

If you keep both your accounts at the same bank, it’s easy to transfer money from your savings to your checking. Way too easy. So avoid the problem—andthese other money pitfalls .

45. Direct Deposit is (Almost) Magic

Why, you ask? Because it makes you feel like the money you shuttle to your savings every month appears out of thin air—even though you know full well it comes from your paycheck. If the money you allot toward savings never lands in your checking account, you probably won’t miss it—and may even be pleasantly surprised by how much your account grows over time. Find out other ways to get your emergency fund started .

46. Consider Switching to a Credit Union

Credit unions aren’t right for everyone, but they could be the place to go for better customer service, kinder loans, and better interest rates on your savings accounts.

47. There Are 5 Types of Financial Emergencies

Hint: A wedding isn’t one of them. Only dip into your emergency savings account if you’ve lost your job, you have a medical emergency, your car breaks down, you have emergency home expenses (like a leaky roof), or you need to travel to a funeral. Otherwise, if you can’t afford it, just say no. We explain more here .

48. You Can Have Too Much Savings

It’s rare, but possible. If you have more than six months’ savings in your emergency account (nine months if you’re self-employed), and you have enough socked away for your short-term financial goals, then start thinking about investing.

How to Approach Investing

49. Pay Attention to Fees

The fees you pay in your funds, also called expense ratios, can eat into your returns. Even something as seemingly low as a 1% fee will cost you in the long run. Our general recommendation is to stick with low-cost index funds.

50. Rebalance Your Portfolio Once a Year

We’re not advocates of playing the market, but you need to take a look at your brokerage account every once in a while to make sure that your investment allocations still match your greater investing goals.

Financially Healthy

When it comes to your money, there are an awful lot of numbers floating around.

From your savings account statement to your investing portfolio, every number tells you something … but some are more revealing than others.

Three numbers in particular give an indication of your overall financial health: Your retirement savings, your debt and your emergency fund.

“These three numbers are your basic financial security,” explains Stephany Kirkpatrick, CFP®, vice president of operations and financial advice at LearnVest Planning Services. By getting a handle on these figures, she says, “you’ll begin to develop the foundation to help build your future.”

For guidance, we’ve enlisted Kirkpatrick’s help to explain the significance of these numbers, and how to help make yours represent finances that are in tip-top shape!

RELATED: You’re Out of Debt, Have Savings, and Are on Track for Retirement: So, What’s Next?

1. Retirement

Why does crunching this number matter? Simple. The money you save today will most likely be your primary income source for the entire time you’re retired, which could be 20 years … or far longer. And the secret of retirement savings is that the sooner you start saving, the more time your money has to grow. In other words, if you start investing money at 25 or 30, you’ll actually have to save less (and worry less) in the long run.

Now that increasing numbers of peopledon’t have pensions to rely on, it’s more crucial than ever that you open the proper retirement account for you. Chances are, it will be just you and your savings to help you retire on a beach, travel the world or gift to your grandkids.

Crunch Your ‘Retirement Number’

First, it’s time to track down all of your retirement accounts. Maybe you put some money away early on in your career—then switched jobs and left that 401(k) behind. (In that case, it’s probably time for a rollover.) Maybe you opened a Roth IRA that you promptly forgot you had. Today’s the day to figure out exactly how much you’ve saved so far.

If sorting through the details of your accounts sounds like a drag, considering tracking them all in one place; LearnVest.com, for instance, lets you link up each of your accounts and see your total savings in one place. Then, just for fun, go ahead and see how your savings compare to others’.

But forecasting precisely how much we’ll need in the bank when it comes time to retire is an inexact science—for starters, there simply isn’t a way to predict how long we’ll live.

But you should have a rough estimate to guide your savings. To predict how much you should aim to save in total, you can start by using a free retirement calculator. The important details to plug in are your current age; the age you plan to retire (67 is standard); your household income; your current savings; about how much you expect your income to increase each year; the percentage of your current income you think you’ll need in retirement (also known as a “replacement ratio”); and the total number of years you’ll need your retirement income to last.

One note: Kirkpatrick recommends a replacement ratio of 85% of your current household pre-tax income at a minimum, but not everyone will need 85% exactly—check out our guide to estimating how much you’ll need to live the retired lifestyle you want.

Best Places to Put Your Savings

Money that is considered savings is often put into a low risk, interest-earning account, rather than into higher risk investments. Although there is opportunity for larger returns with certain investments, the idea behind savings is to allow the money to grow slowly with little or no associated risk. The advent of online banking has increased the variety and accessibility of savings accounts and vehicles. Here are some of the different types of accounts so you can make the most of your savings.

1. Savings Accounts

Savings accounts are offered by banks and credit unions. The money in a savings account is insured by the Federal Deposit Insurance Corporation (FDIC) up to specified limits. Certain restrictions may apply to savings accounts; for example, a service fee may be charged if more than the permitted number of monthly transactions occurs.

Money in a savings account typically cannot be accessed through check-writing or ATMs. Interest rates for savings accounts are characteristically low; however, online banking does provide higher-yielding savings accounts. (Even with inflation fears, saving money is still sage advice in a recovering economy. Check out How Savings Are Saving The Economy.)

2. High-Yield Bank Accounts

High-yield bank accounts are a type of savings account, complete with FDIC protection, which earns a higher interest rate than a standard savings account. The reason that it earns more money is that it usually requires a larger initial deposit, and the access to the account is limited. Many banks offer this account type to valued customers who already have other accounts with the bank. Online high-yield bank accounts are available, but you will need to set up transfers from another bank to deposit or withdraw funds from the online bank.

3. Certificates of Deposit (CDs)

Certificate of Deposits (CDs) are available through most banks and credit unions. Like savings accounts, CDs are FDIC insured, but they generally offer a higher interest rate, especially with larger and/or longer deposits. The catch with a CD is that you will have to keep the money in the CD for a specified amount of time; otherwise, a penalty, such as three months’ interest, will be assessed.

Popular CD maturity periods are six-month, 1-year and 5-year. Any earned interest can be added to the CD if and when the CD matures and is renewed. (A CD ladder allows you to stagger your investments and take advantage of higher interest rates. Learn how in Save Smart With A CD Ladder.)

A money market fund is a type of mutual fund that invests only in low-risk securities. As a result, money market funds are considered one of the lowest risk types of funds. Money market funds typically provide a return similar to short-term interest rates. Money market funds are not FDIC insured, and are regulated by the Securities and Exchange Commission’s (SEC) Investment Company Act of 1940.

Mutual funds, brokerage firms and many banks offer money market funds. Interest rates are not guaranteed so a bit of research can help find a money market fund that has a history of good performance.

5. Money Market Deposit Accounts

Money market deposit accounts are offered by banks, and typically require a minimum initial deposit and balance, with a limited number of monthly transactions. Unlike money market funds, money market deposit accounts are FDIC insured. Penalties may be assessed if the required minimum balance is not maintained, or if the maximum number of monthly transactions is surpassed. The accounts typically offer lower interest rates than certificates of deposit, but the cash is more accessible. (Learn more about liquidity in Diving In To Financial Liquidity.)

6. Treasury Bills and Notes

U.S. government bills or notes, often referred to as treasuries, are backed by the full faith and credit of the U.S. government, making them one of the safest investments in the world. Treasuries are exempt from state and local taxes, and are available in different maturity lengths. Bills are sold at a discount; when the bill matures, it will be worth its full face value. The difference between the purchase price and the face value is the interest. For example, a $1,000 bill might be purchased for $990; at maturity, it will be worth the full $1000.

Treasury notes, on the other hand, are issued with maturities of 2, 3, 5, 7 and 10 years, and earn a fixed-rate of interest every six months. In addition to interest, if purchased at a discount, T-notes can be cashed in for the face value at maturity. Both Treasury bills and notes are available at a minimum purchase of $100.

7. Bonds

A bond is a low-risk debt investment, similar to an I.O.U., which is issued by companies, municipalities, states and governments to fund projects. When you purchase a bond, you are lending money to one of these entities (known as the issuer). In exchange for the “loan”, the bond issuer pays interest for the life of the bond, and returns the face value of the bond at maturity. Bonds are issued for a specific period at a fixed interest rate.

Each of these bond types involves varying degrees of risk, as well as returns and maturity periods. In addition, penalties may be assessed for early withdrawal, commissions may be required, and depending on the type of bond, may carry additional risk, as with corporate bonds where a company could go bankrupt.

Make Money with Airbnb

Does your 9-to-5 paycheck leave much to be desired? Are you trying to pay down a mountain of debt as quickly as possible? Do you have a room in your home that you aren’t using, or are you frequently out of town and paying rent or a mortgage on space you aren’t occupying very often?

The peer-to-peer short-term rental service Airbnb might be the solution to your problems. Here’s what you need to know about the risks and rewards of renting out all or part of your home through this service. (For more information, see The Pros and Cons of Using Airbnb.)

How to List

You decide when to make your space available and at what price. Listing is free, and you can individually approve potential guests. In setting your price, you’ll want to consider the going rate in your area by looking at competing listings. You’ll want to consider the costs of hosting – including cleaning, higher utility bills, taxes and Airbnb’s host fee, which is 3% for payment processing. Your guests pay Airbnb’s 6% to 12% booking fees. Make sure you understand Airbnb’s hosting standards for listing accuracy, communication with guests, keeping your reservation commitments, cleaning your place for each guest and providing basic amenities such as soap and toilet paper. (For related reading, see How Airbnb Makes Money.)

Getting Permission and Paying Taxes

Before listing your place on Airbnb, you might need to get permission. If your property is controlled by a homeowners’ association or co-op, check its rules to make sure you’re allowed to host. If you rent, you’ll want to get your landlord’s blessing. Airbnb suggests adding a rider to your contract with any of these entities to specifically address hosting through Airbnb.

In addition, your locality might require a business license, and you might owe local taxes on any income you earn. For example, you might have to pay a transient occupancy tax, the same tax that applies to hotels. Hotels usually pass this tax onto their guests: You might recall the extra 12% that was added to your bill the last time you stayed somewhere. You can look up Airbnb’s information on many cities’ regulations here.

You’ll also owe federal taxes on Airbnb income, which will be reported to you and to the IRS on form 1099. However, you may be able to reduce your taxable Airbnb income by deducting business expenses, such as cleaning fees and insurance. (Read 10 Tax Benefits for the Self-Employed for more information.)

Personal Safety

Is it safe to rent out your home to a stranger? If you’re renting out your home when you won’t be there, you’re probably not at risk of physical violence. However, you’ll want to find a safe place to store anything of high sentimental or financial value. Your wedding dress, Grandpa’s gold watch, photo albums, your emergency cash and your tax returns are all examples of things you’ll want to secure. Don’t give guests the opportunity to steal your possessions or your identity.

Things get trickier if you’re renting out part of your home while continuing to live there. You can keep a closer eye on your stuff (though you’d still be wise to safeguard it), but you’re physically vulnerable if your guest turns out to be dangerous. It’s not realistic to run criminal background checks on guests before they book or before they check in; you can do some basic Internet sleuthing, but it’s not a failsafe process.

Reviews from previous hosts can offer reassurance, and you can always decline a reservation or even cancel a booking, though in some cases Airbnb will impose penalties. You can also limit the reservations you accept to guests who have completed Airbnb’s Verified ID process. Both hosts and guests can have Airbnb verify their identity by uploading a valid government-issued ID and connecting a Facebook, Google+ or LinkedIn account to an Airbnb account. (See Why You May Want To Think Twice About Renting Out Your Home to learn more about the risks of hosting.)

Home Safety

Airbnb also provides guidelines for hosts to make their homes safer. If basic human decency doesn’t give you enough incentive to make your place safe for guests, minimizing safety risks to guests minimizes your risk of being sued by a guest who is injured on your property. Guests also might give you lower ratings if you haven’t taken basic precautions to protect them, such as installing smoke and carbon monoxide detectors and eliminating or pointing out any trip or fall hazards. If you’re particularly negligent, Airbnb could refuse to let you continue to host.

Speaking of liability, let’s talk about insurance. Airbnb’s host guarantee provides up to $1 million in insurance coverage for property damage in 29 countries, including the United States, United Kingdom and Canada. Airbnb’s insurance is not a substitute for homeowner’s or renter’s insurance, and it doesn’t protect against theft or personal liability. Talk to your homeowner’s or renter’s insurance company to make sure your policy will cover your property, your possessions and your liability while renting out your place through Airbnb. If you need extra coverage, an umbrella policy might be the ticket. See Homeowner’s Insurance Guide.

Airbnb offers liability insurance for U.S. hosts. It offers up to $1 million per occurrence and is secondary to any other insurance, such as your homeowner’s policy or your landlord’s insurance, that might cover the incident. Like any insurance policy, Airbnb’s liability insurance has conditions and limitations, so if you want to know exactly what’s covered and what’s not, read the fine print thoroughly.

Airbnb’s host guarantee doesn’t protect against wear and tear to your place, but you can charge a security deposit to cover possible damage. It’s important to inspect your property after each guest checks out because otherwise you’ll have no way of knowing which guest caused the damage and you won’t be eligible to file a claim. You’ll want to document any damage with photos and substantiate the “before” value of the damaged property. Airbnb asks that hosts first try to resolve any problems directly with guests before filing a claim. To file a claim with Airbnb for more than $300, you’ll need to first file a police report. Hosts have a limited window to file a claim: 14 days or before the next guest checks in, whichever is sooner.

“Airbnb provides an option to procure a refundable security deposit, which is what I do for each guest,” says Deb Glassman, who has been renting out her Venice, California, home on Airbnb for the last four years. “In the one or two situations where I have had to collect the security deposit for minor issues, Airbnb has always backed me 100% with the guest.” She adds that staying in the studio in the back of her house while renting it out seems to be an automatic deterrent to potential guests who might want to party.

Payment Guarantees

Is it possible for a guest to crash and dash – that is, to stay overnight in your place without paying you?

Guests actually pay you through Airbnb. As long as there are no problems, Airbnb will release your payment within 24 hours of your guest’s arrival, and you’ll receive it within as soon as a few hours, if you choose to get paid via PayPal or via Payoneer prepaid debit card, within a few days for a bank transfer, or within 15 business days for a mailed check.

Guests must notify Airbnb within 24 hours of check-in if there’s a problem that warrants a refund. If you don’t respond to guests who try to contact you about a problem, they might be allowed to complete their reservation and receive a partial refund.

Airbnb could require you to refund a guest’s payment if you cancel a reservation at the last minute, forget to leave the key, misrepresent your listing, don’t clean your home or otherwise fail to meet Airbnb’s hospitality standards. Airbnb suggests making sure you’re available within 24 hours of guests’ scheduled check-in to address any concerns they might have since many problems are easily resolved. In your listing, make sure you describe your room type, number of bedrooms and bathrooms, and amenities accurately. If you choose to provide linens and towels, make sure they’re clean. Also note whether there will be any animals on the property.

You could also get burned if you arrange payment with a guest outside of the Airbnb website. A guest might try to do this to avoid paying Airbnb’s guest fee or might be planning to rip you off. As a host, you only stand to save 3% by not going through Airbnb’s payment system, plus Airbnb could refuse to do further business with you if you get caught. So don’t try to circumvent the system.

Why Say No To Credit

With credit abundantly available, getting what you want right away, regardless of whether you have the cash to pay for it, is common practice. There are many rationales for convincing yourself that this behavior is acceptable: you’ve had a rough week and you deserve a treat; you’ll be able to pay off your credit card as soon as you get your next paycheck; you need a wireless fitness wristband to help you lose weight; or perhaps you feel you’ve waited long enough for that new car and you’re not willing to wait anymore.

Combine the excuses from those of us who know better with those of us who don’t, and you’ve got a nation of debtors. Whether you need a gentle nudge to get back on the right track or some basic knowledge to keep yourself out of trouble in the first place, we’ll give you nine ways to help you talk yourself out of drawing on credit. (To learn more about the pros and cons to credit, check out our Debt Management feature.)

1. Financing your purchases doesn’t teach self control

At best, an unwillingness to exercise self control when it comes to money can rob you of financial security. At worst, an impulsive attitude toward buying can have a negative impact on other areas of your life as well, such as having self control. Yes, exercising self control can be both difficult and boring, but it actually has many not-so-boring rewards, from staying out of the hospital to being able to afford your own home.

What, you don’t have a budget? Well, don’t despair; it’s easier than you think. For many people, budgeting is a great tool for keeping spending under control. It’s easy to not realize how much charging a cup of coffee here, and a new book there, can add up over the course of the month and get you in trouble. The solution is to plan your expenses and write everything down. Budgeting can be as simple as making a pen-and-paper list of how much money you earn in a given month, followed by a running total of all your expenses. If you know how much money you have left, then you will know how much you can spend. (To learn more about creating a budget, read our Budgeting 101 feature.)

3. Credit card interest rates are expensive

The reason self-control is so important when it comes to your finances isn’t a moral or spiritual thing: it’s a practical thing. Credit card interest rates are high, which can make financing your purchases expensive. If you don’t have the money to pay cash for something in the first place, you probably don’t want to make it even more expensive by adding interest to the price. If you buy an item for $1,000 using your credit card (with its 18% interest charge) and you only make the minimum payment every month, over one year you will end up paying $175 in interest. And to top it off, you will still owe $946 on your purchase.

4. Credit card interest rates increase when you can’t pay off your balance in full

To add insult to injury, that great annual percentage rate (APR) you thought you had on your credit card might have merely been an introductory rate that was subject to increase after a certain period if the balance has not been paid in full. An 8.99% APR can skyrocket to a 29.99% APR in the blink of an eye. “But that will never happen to me,” you might say.”I’ll pay my balance in full as soon as it’s payday.” You may have the best of intentions, but they can easily get derailed by an unplanned expense like a car repair or an unexpected event like losing your job.

5. A poor credit score can affect your insurance rates, being accepted for a job or the ability to finance meaningful purchases like a home.

If your credit card balances go unpaid, your credit score will start to diminish. The next time one of your insurance policies is up for renewal, you may get hit with an unexpected rate increase. Insurance companies that check your credit score when considering your premium seem to assume that if you can’t pay your bills, you might be letting your car or home maintenance slide, or you might be an irresponsible person in general, all of which could make you a higher risk by increasing your odds of filing a claim.

Some employers also run credit checks on potential job applicants, and an employer who is concerned enough to check your credit score will probably be concerned enough to not hire you if it’s poor. If purchasing or refinancing a home is in your future, your credit score is particularly important, as it will determine the interest rate on your mortgage, or whether you’re even eligible for a mortgage at all.

6. Poor financial habits can jeopardize your relationships

Money is probably one of the main reasons couples and families fight. It can be an extremely touchy subject, especially when there’s not enough of it. Budgeting for expenses should be done with your family and significant other in mind. (For more, read The No.1 Reason Why Couples Fight.)

7. Financing purchases can lead to higher spending

Some people spend more money, either by purchasing more items or by purchasing more expensive items, when paying on credit than they would with cash. Purchasing a $1,000 laptop might be easy to accept if you just sign a piece of paper. On the other hand, if you pay with cash, you can physically feel the $100 bills leaving your hand. This will give you a better sense of not only how much that laptop truly costs, but also how much money you have left in your now-lighter wallet.

8. In a worst-case scenario, the habit of financing your purchases can lead to bankruptcy

If you go on enough spending sprees without a plan for paying them off, or if your plan goes awry because you lose your job, or get hit with massive medical bills, you may find yourself hopelessly in debt. Declaring bankruptcy will scar your credit history for up to 10 years, and even when it finally goes away, you’ll still have to slowly build up good credit again. An ounce of prevention is worth a pound of cure. (If you’re facing bankruptcy, see What You Need To Know About Bankruptcy.)

9. Avoiding financing can bring peace of mind

If you don’t owe anyone money, you won’t have to worry about late fees, interest, annual fees or over-the-limit fees. The best way to treat yourself to something nice is to save up for it and buy it when you can truly afford it. The peace of mind that will come with not financing your purchase will be like treating yourself twice.

Grow Your Savings Account Balances

One of the common top concerns that I hear from individuals is how they’re not able to save. A consistent savings plan helps you build a solid financial foundation.

But where do you begin? Here are seven ways to help you grow your account balances. Your strategy starts with your spending plan.

1. Create a budget (or spending plan)

Living beneath your means is the first step to building wealth. In addition to living beneath your means, it is equally important to identify where your money is being spent. By tracking your spending you can identify areas where you can potentially redirect money to fund your goals. Your spending plan should include goals for savings including your 401(k) and/or IRA contributions.

2. Set up a savings plan

Setting up a savings plan is key to building a solid financial foundation. You should keep at least three to six months living expenses in a liquid account such as an FDIC-insured savings account or money market for emergencies. Set a monthly amount to have transferred to your savings account.

You can also boost your savings by opening either a CD or an online FDIC-insured savings account.

3. Consider opening a CD

You may have goals where you want to fund but have a one- to five-year time horizon, such as saving for a car or down payment on a home. One of the best ways to increase your yield over a money market or savings account is to open an FDIC-insured CD. You can still keep funds fairly liquid. However, in order to get a higher yield, the account minimums on a CD are fairly high.

4. Consider opening an online FDIC-insured savings account

Typically, rates on online savings accounts are higher than traditional banks. It is a good idea to compare rates and terms. You can compare rates on websites such as www.nerdwallet.com or www.bankrate.com. (For related reading, see: 5 Emotional Mistakes That Hurt Your Financial Plans.)

Here are three ways to increase your 401(k) or IRA savings:

5. Maximize your contributions

Take advantage of your employer’s 401(k) or other employer-sponsored retirement plan by contributing the maximum you can to the plan. If you cannot contribute the maximum, just start with what you can afford and build from there. A good strategy is to increase your contribution each time you receive a raise until you reach the maximum contribution. If you receive bonuses, use part of them to contribute to an IRA.

6. Consolidate your retirement accounts

You should consider consolidating multiple IRAs and rolling over 401(k)s from previous employers. If you are no longer with the company, your money shouldn’t be there either. By consolidating into an IRA, it gives you more flexibility in terms of investment options and gives you a better picture of your portfolio.

7. Invest early and often

The younger you are when you start contributing to your retirement plans, the less you need to save. The key is to just start with what you can afford and contribute on a regular basis by setting up an automatic transfer from your account or paycheck to fund your IRA or 401(k).

You are in control of your financial future. Careful planning and a savings strategy can go a long way towards building a solid financial foundation and helping you achieve your long-term goals.

Build Wealth and Grow it Over Time

There is a stark difference between earning money and being wealthy. Wealth is the accumulation of appreciable assets such as property, investment accounts and retirement accounts. Creating wealth requires a strategic plan to save, invest and grow your assets over time.

Here are some ideas to get you on track to grow your wealth.

1. Pay Yourself First

You are your most important asset. You are the person that earns your money. And you are responsible for taking care of yourself first. Make it easy – have money deducted from your earnings automatically and moved into your investment account.

Your investment accounts are different than your savings accounts. Your savings is in cash, CDs or money market accounts and can be easily accessed in case of emergencies or large purchases. Additionally, savings accounts should represent what you’ll need to live off of for six to nine months in case your source of income disappears because you lose your job, become disabled or, perhaps, have to care for a loved one. Your investment accounts – your retirement or brokerage accounts – are for the longer term.

2. Live Below Your Means

You shouldn’t spend all of your income. Period. Just because you have money in your checking account after you’ve paid your bills, you shouldn’t just spend it all. These funds should be allocated appropriately to your savings and investments accounts.

This doesn’t mean you don’t treat yourself periodically. And it doesn’t mean you can’t celebrate or share wonderful experiences with family and friends. What this means is that you take the time to think about what is special to you and plan for it. For example, if it’s a trip to Disney World, be smart about it. Save and look for discounts. (For related reading, see: Start Your Financial Plan by Talking About Money.)

3. Think Long Term

Wealth, although at times obtained through a windfall, is more frequently associated with consistent investing over time. These investments frequently include savings, retirement accounts, investments accounts, a home and perhaps an investment property.

For women, this is especially important. They tend to live about five years longer than men. According to the Society of Actuaries, A 65-year-old woman has a 53% chance of living to age 85 and a 32% chance of living to age 90.

4. Make Consistent Investments

Similar to contributions to your company’s retirement plan, investing consistently beyond a savings account allows your funds to grow in the stock market. Consistent investments also allow you to purchase securities when they cost less – when the market is down.

Your investment accounts, such as your retirement or brokerage accounts, are for the longer term. As little as $50 a month consistently invested in your account can grow substantially if invested in a balanced portfolio.

5. Ask for Help

Establish a relationship with a financial advisor. A financial advisor will work with you to create a strategy that is supportive of you and your lifetime goals. This person can help turn your income into wealth by helping you identify goals that support what’s important to you. Just think: your advisor may have ideas you never thought of or help guide you through a difficult time. There is no reason to do this alone.

For women, this is especially true. We may not be as comfortable with the terminology of finance and how all the various instruments work. Therefore, find an advisor who is patient and is grounded in educating her clients.

Know Economic Concepts Consumers

An understanding of economics isn’t seen as being as vital as balancing a household budget or learning how to drive a car. However, economics has an impact on every moment of our lives because, at its heart, it is a study of choices and why and how we make them. In this article, we’ll look at some basic economic concepts that everyone should understand.

Scarcity

You implicitly understand scarcity, whether you are aware of it or not. It is the most basic concept in economics, and is more of a solid fact than any abstraction. Simply put, the world has limited means to meet unlimited wants, so there is always a choice to be made. For example, there is only so much wheat grown every year. Some people want bread; some people want cereal; some people want beer, and so on. Only so much of any one product can be made because of the scarcity of wheat. How do we decide how much flour should be made for bread? Or cereal? Or beer? One answer is a market system.

Supply and Demand

The market system is driven by supply and demand. Take beer again. Let’s say people want more beer, meaning the demand for beer is high. This demand means you can charge more for beer, so you can make more money on average by changing wheat into beer than grounding that same wheat into flour. More people start making beer and, after a few production cycles, there is so much beer on the market that prices plummet. Meanwhile, the price of flour has been increasing as the supply shrinks, so more producers buy up wheat for the purpose of making flour – and on, and on.

This extreme and simplified example does encapsulate the wonderful balancing act that is supply and demand. The market is generally much more responsive in real life, and true supply shocks are rare – at least ones caused by the market are rare. On a basic level, supply and demand helps explain why last year’s hit product is half the price the following year.

Costs and Benefit

The concept of costs and benefits encompass a large area of economics that has to do with rational expectations and rational choices. In any situation, people are likely to make the choice that has the most benefit to them, with the least cost, or, put another way, the choice that provides more in benefits than in costs. Going back to beer, the breweries of the world will hire more employees to make more beer, only if the price of beer and the sales volume justifies the additional costs to the payroll and the materials needed to brew more. Similarly, the consumer will buy the best beer he or she can afford, not, perhaps, the best tasting beer in the store.

This extends far beyond financial transactions. University students perform cost benefit analysis on a daily basis, by focusing on certain courses that they believe will be more important for them, while cutting the time spent studying or even attending courses that they see as less necessary.

Of course, everyone knows someone who has seemingly made a poor life choice. Although people are generally rational, there are many, many factors that can throw our internal accountant out the window. Advertising is one that everyone is familiar with. Commercials tweak emotional centers of our brain and do other clever tricks to fool us into overestimating the benefits of a given item. Some of these same techniques are used quite adeptly by the lottery, showing a couple sailing a yacht and enjoying a carefree life. This image and its emotional message (“this could be you”) overwhelm the rational part of your brain that can run the very, very long odds of actually winning. Cost and benefits may not rule your mind all the time, but they are in charge more than you think – especially when it comes to the next concept. (This free thinker promoted free trade at a time when governments controlled most commercial interests. Check out Adam Smith: The Father Of Economics.)

Everything Is in the Incentives

Incentives are part of costs and benefits and rational expectations, but they are so important that they are worth further examination. Incentives make the world go round, and sometimes go wrong. If you are a parent, a boss, a teacher or anyone with the responsibility of oversight, and things are going horribly awry, the chances are very good that your incentives are out of alignment with what you want to achieve.

We’ll take a safe example, however, of – you guessed it – a brewery. This particular brewery has two sizes of bottle: one 500 ml bottle and a 1L bottle for couples. The owner wants to increase production, so he offers a bonus to the shift that produces the most bottles of beer in a day. Within a couple days, he sees production numbers shoot up from 10,000 bottles a day to 15,000. However, he is soon deluged with calls from suppliers wondering when orders of the 1L bottles are going to come. The problem, of course, is that his incentive focused on the wrong thing – the number of the bottles rather than the volume of beer – and made it “beneficial” for the competing shifts to cheat by only using the smaller bottles.

When incentives are aligned with organizational goals, however, the benefits can be exceptional. Some incentives have been proven so effective that they are common practice at many firms, such as profit sharing, performance bonuses and employee shareholding. However, even these incentives can turn disastrous if the criteria for the incentives falls out of alignment with the original goal. Poorly structured performance bonuses, for example, have driven many a CEO to take temporary measures to juice the financial results enough to get the bonus – measures that often turn out to be detrimental in the longer term.

Putting It All Together

Scarcity is the overarching theme of all economics. It sounds negative, and it is one of the reasons economics is referred to as the dismal science, but it simply means that choices have to be made. These choices are decided by the costs and benefits that impact the choice, leading to a dynamic market system where choices are played out through supply and demand. On a personal level, scarcity means that we have to make choices based on the incentives we are given and the cost and benefits of different courses of action. This is a very broad look at what is, believe it or not, a very compelling subject. These concepts feed into others, like comparative advantage, entrepreneurial spirit, marginal benefit and so on. The world is wide with choices, so the field of economics is wide with theories, laws and concepts that explore those choices.

Steps to Save More for Retirement

One of the most common questions a financial advisor hears is, “Am I saving enough for retirement?” This seems to be at the top of people’s minds, especially as they get older. Because every person’s dreams and goals are different, there’s no one-size-fits-all answer. However, there are three things that everyone should be doing to get as close as possible to the goal of having enough money for retirement.

Aim to Save 15% of Income

It’s important to have a specific goal when saving for retirement, so you have something to work towards. Generally speaking, it’s recommended to save 15% of your pre-tax income toward retirement. That is $15,000 for every $100,000 you make a year. (For more, see: 10 Steps to Retire a Millionaire.)

While the earlier and the more you save the better, 15% is a reasonable number for most people to fit into their budget. It works well because it is enough to build a nest egg, but not so much that it will hurt you in the present.

For many people, their only goal is to contribute up to the match on their company’s 401(k) plan. While this is a good goal, it is not enough. You can’t assume that just meeting the match will be enough to build a sufficient nest egg.

Not only is contributing up to the match not usually enough, but sometimes even maxing out your company’s retirement plan isn’t enough. The annual contribution limit on a 401(k) plan is $18,000. If you make over $120,000 a year, a 401(k) alone won’t be enough to get you to 15%. You will need to save elsewhere as well, like in a Roth IRA (if eligible) or even a taxable account.

Don’t assume that since you’re maxing out your company plan that you’re saving enough. While it may be enough for some people, if you’re used to a higher standard of living because of your higher salary, you’ll need more savings. Instead of focusing on specific accounts, focus on saving 15%.

Invest Your Savings Intelligently

Although 15% is an important goal to shoot for, how that money is invested and the vehicles used are of equal importance. You’re working hard to save all that money, so don’t let your efforts go to waste by not handling it wisely.

One of the biggest investment mistakes an investor can make is investing long-term money too conservatively. While your risk tolerance is an important factor in choosing an investment, it’s important to know the trade offs, because all investments are not created equal. And the longer your time horizon, the greater the inequalities grow. (For more, see: Not All Retirement Savings Accounts Should Be Tax-Deferred.)

For example, let’s say you are going to invest $15,000 a year for 30 years. If you put it in a fixed investment earning 2% a year, you will end up with $620,000. That may not sound bad, but let’s take a look at the trade off. If you were to invest that same money in equities earning 7%, you would end up with $1,520,000. That’s a $900,000 difference.

Rates of return will have a great impact on the amount that you are able to accumulate, but so will the kind of investment vehicles you choose to use. Your savings will probably be much more effective if put them in a Roth account instead of a regular account.

If you choose to use a Roth 401(k) instead of a regular one, there will be a difference in your take-home pay. Roth investments are post tax, while regular 401(k)’s are pre-tax, so you will take home less with a Roth. However, when it comes time to withdraw your money, there will be a difference as well.

Remember our example above, with $15,000 invested annually over 30 years into an equity investment earning 7%? Had that money been invested in a Roth 401(k), the $1.5 million would be tax-free upon withdrawal. If it were in a regular 401(k), the $1.5 million would be taxable as you withdrew your money. That’s a huge tax savings just for using a different kind of retirement account.

Do the Math

If you’re wondering if you’re saving enough for retirement, the better question to ask is have you ever calculated just how much money you will need in retirement? Have you ever taken the time to sit down, look at the numbers, and do the math to come up with a target nest egg?

You should. Simply knowing how much money you need can be a strong motivator to increase your savings habits. This can be huge if you have a long time to save for retirement. Calculating the numbers to see how much accumulated interest will contribute towards your nest egg instead of having to save it out of your income later in life can be mind boggling. Continuing the above example, if you waited 10 years to begin saving, you would have to set aside over twice as much per year to end up with the same amount of money!

If you’re doing all that you can to save, but still don’t feel that you’re saving enough, it’s time for a second look at your budget. Often, after a thorough analysis, you can find more money to put away for retirement. It can be as simple as defining needs versus wants in light of your bigger goals.

Sometimes, the thought of calculating retirement needs and deciding on investments can be overwhelming. Know that there is help. Financial professionals can help provide guidance with your personal situation.